Fed forecasts 0% Fed Funds rate through 2022

[TheStateUofMS]

Their predictions can be crappy that far out, but damn.

 

[dudehead]

The transfer of wealth from our seniors marches on.

 

[TheStateUofMS]

There's companies you can own who will pay a consistent safe dividend. Don't watch the share price on a constant basis, but you'll see the div checks coming in regularly.


ETA: I agree with your point though. Many folks aren't comfortable with taking risks like that, even if it's fairly low.

 

[57stratdawg]

Seems like that might throw some water on the mortgage refinance industry, no?

 

[TheStateUofMS]

I would think it would lead to a boon in refinances by the folks who didn't get one last time. It'll also lead to more 1st time mortgage applications I would think.

Really the people this 17s is fixed income investors which includes massive pensions that are under performing and not funded at the level they should be.

 

[fishwater99]

I would think it would lead to a boon in refinances by the folks who didn't get one last time. It'll also lead to more 1st time mortgage applications I would think.

Really the people this 17s is fixed income investors which includes massive pensions that are under performing and not funded at the level they should be.

This.. I hope to get my two properties refinanced soon. Mortgage rates will remain low for at least 6 more months.

 

[Quincy A. Wagstaff]

Everything is fine.

 

[TheStateUofMS]

HODL right?***

 

[horshack.sixpack]

When was the last time you could find any yield on fixed income?

 

[Shmuley]

TSUMS, give me your best guess. What is the 30 yr mortgage rate floor? Below 2%?

 

[TheStateUofMS]

I am not a mortgage guy at all. I could guess what the 10yr Treasury may do, which I believe is connected to mortgage rates.

The record low on 3/9/20 was .39%. I'm sure the 10yr will gradually fall towards that. I'd expect to see us go under .5% fairly soon. Hope the market can take it.

 

[TheStateUofMS]

What would be a decent yield? It's all relative.

 

[57stratdawg]

I hear ya, but I'm wondering how much re-fi demand will be left in a couple months. It was already trending down in April / May. We got the rate cut in early March. I'm not sure how many people will be rushing out to refinance 180 days after the rate reduction was announced, especially if the FED is expecting rates to remain at 0% for the foreseeable future.

I guess some people might have waited over job loss concerns.

 

[TheStateUofMS]

If you look at the weekly mortgage applications and refinances, they surge every time there's a sizable drop in rates. I expect this time to be no different.There's demand now and there's so many people who are just now starting to enter the market for their first home. It's taken millennials a long time to be ready to buy their first home.

Demand probably dropped in April/May just like all types of confidence levels dropped. Folks who were in good financial shape pre covid lock downs, aka potential home buyers, are probably 95% unaffected financially because of covid.

 

[Quincy A. Wagstaff]

I'm not worried. The Fed has promised there isn't a limit to how much money they can create. ***

 

[Jeffreauxdawg]

I have been digging into the effects of long-term low interest rates and printing money... When I get good and drunk and put my tinfoil hat on... I will type it up. Long story short, in the early 90's the BLS changed the way they calculated inflation from a cost of goods model to a cost of living model.

One of the effects of low interest rates is it increases inflation, but if you cheat on the calculation of inflation, you can make it look however you want.

More to come, but it's beginning to look like we may have experienced inflation more like 5% since 2009, not 2%... More to come. But gold looking good.

View attachment 16393

In the late 90's Allen Greenspan changed the way inflation was calculated. Social Security was getting out of hand and it was tied to the CPI index. The big change was hedonic change adjustments. Greenspan basically argued that if a car price went up, part of it should be attributed to the better quality of the vehicle. But the reality is from the Model A to the 97' F-150, features always improved.

https://www.bls.gov/cpi/quality-adj...s to,introduction of completely new products.

Here is an example. Single Cab Ford F150's from 94', 08', and 2016'. I would argue a whole hell of a lot more advancements were made from 94' to 08' than from 08' to 16'. Yet the price only rose 1.8% per year from 94' to 08' and over 5% per year from 2008 to 2016. The difference is the massive inflation we experienced from all of the money printing and ultra low interest rates.

View attachment 16394

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[Quincy A. Wagstaff]

I agree inflation is probably underestimated, but even if it's not, 2% is the stated target of the Fed. That means if they hit their target the purchasing power of your money will cut in half over a 35 year period. What if it is underestimated? What if inflation exceeds their target? Your purchasing power will be cut in half in less than 35 years.

 

[johnson86-1]

The transfer of wealth from our seniors marches on.

They are mostly getting a **** ton more out of social security and medicare than they paid in and ran up a pretty good national debt that younger people are presumably going to bear the brunt of, so I think it' sgoing to take more than low interest rates for them to be able to claim wealth has been transferred from them.

 

[dudehead]

They are mostly getting a **** ton more out of social security and medicare than they paid in and ran up a pretty good national debt that younger people are presumably going to bear the brunt of, so I think it' sgoing to take more than low interest rates for them to be able to claim wealth has been transferred from them.

Good point. That $26 trillion in debt is largely theirs - damn starve the beast, supply side generation that refused to pay their bills.

 

[wsjmsu75]

They are mostly getting a **** ton more out of social security and medicare than they paid in and ran up a pretty good national debt that younger people are presumably going to bear the brunt of, so I think it' sgoing to take more than low interest rates for them to be able to claim wealth has been transferred from them.

I am getting SS retirement and Medicare, and I have a long way to go before I get out what I put in, thank you very much. And, if I had my way, there would be no national debt.

 

[TheStateUofMS]

There's been lots of inflation in some areas, but not in others. Technology, however, is the biggest driver of deflation and technology keeps pushing long term costs down on the aggregate I bet especially as our economy and lives become more tech focused.

 

[SwampDawg]

I promise you the feds didn't give me any choice as to how much my employer and I were going to kick in. Also the promise of amounts to be paid to me were made without my input. But on the subject, let's talk about President LBJ and the Demo house and senate that decided to "borrow" funds from the SS program. "Of course we'll pay it back!" wink wink

 

[Jeffreauxdawg]

There's been lots of inflation in some areas, but not in others. Technology, however, is the biggest driver of deflation and technology keeps pushing long term costs down on the aggregate I bet especially as our economy and lives become more tech focused.

The vast majority of consumer spending is on food, housing, and transportation. (65-75%) Transportation has definitely gone up much more than published inflation... even with lower fuel prices and better mileage. Food is mixed, because some items are subsidized (milk), but other items are not.

Housing is the most interesting. When you rent it's all inflation. When you own it's "appreciation." The only way to capture the appreciation is to sell or take out a loan. The reality is the cost of housing is going up because interest rates are low and demand is going up... That is inflation.

I'm working on gathering the increase in public (federal, state, and local) and private (business and consumer) debt added since 2008 vs GDP growth above the baseline of about $14.5 trillion in 2008. We have a cumulative of about $36 trillion dollars of GDP added from 2008-2019. We have an extra $24 trillion in public and private debt compared to 2008. So 66% of our GDP growth since 2008 has been created by debt not actual increased output. That's highly inflationary.

 

[BoomBoom.sixpack]

I have been digging into the effects of long-term low interest rates and printing money... When I get good and drunk and put my tinfoil hat on... I will type it up. Long story short, in the early 90's the BLS changed the way they calculated inflation from a cost of goods model to a cost of living model.

One of the effects of low interest rates is it increases inflation, but if you cheat on the calculation of inflation, you can make it look however you want.

More to come, but it's beginning to look like we may have experienced inflation more like 5% since 2009, not 2%... More to come. But gold looking good.

View attachment 16393

In the late 90's Allen Greenspan changed the way inflation was calculated. Social Security was getting out of hand and it was tied to the CPI index. The big change was hedonic change adjustments. Greenspan basically argued that if a car price went up, part of it should be attributed to the better quality of the vehicle. But the reality is from the Model A to the 97' F-150, features always improved.

https://www.bls.gov/cpi/quality-adj...s to,introduction of completely new products.

Here is an example. Single Cab Ford F150's from 94', 08', and 2016'. I would argue a whole hell of a lot more advancements were made from 94' to 08' than from 08' to 16'. Yet the price only rose 1.8% per year from 94' to 08' and over 5% per year from 2008 to 2016. The difference is the massive inflation we experienced from all of the money printing and ultra low interest rates.

View attachment 16394

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I'm an old hat on this topic. The problem with that theory is that there are other methods of estimating inflation that were not affected by the Greenspan/W change. Most of them are from private enterprises, not govt. They don't show the inflation you are suggesting. When I delved into it over a decade ago I concluded the official numbers were shaving about a point off the actual inflation.

 

[Jeffreauxdawg]

I'm an old hat on this topic. The problem with that theory is that there are other methods of estimating inflation that were not affected by the Greenspan/W change. Most of them are from private enterprises, not govt. They don't show the inflation you are suggesting. When I delved into it over a decade ago I concluded the official numbers were shaving about a point off the actual inflation.

I am not certain where it's at...In between the official and the old method may be fair. I am just digging in, but I don't believe these ultra low inflation rates. It's skewed by cheap Chinese ****. The expensive stuff (Housing, vehicles, healthcare, and tuition) are going up fast.

There are consequences to printing money/low interest rates. My take is this for now.

The Fed has a 2000 stock market bubble and a 2008 economic collapse that are dating. If they don't use protection, it's going going give birth to a 70's inflation baby.

 

[BoomBoom.sixpack]

I am not certain where it's at...In between the official and the old method may be fair. I am just digging in, but I don't believe these ultra low inflation rates. It's skewed by cheap Chinese ****. The expensive stuff (Housing, vehicles, healthcare, and tuition) are going up fast.

There are consequences to printing money/low interest rates. My take is this for now.

The Fed has a 2000 stock market bubble and a 2008 economic collapse that are dating. If they don't use protection, it's going going give birth to a 70's inflation baby.

Maybe. To me, the main thing different from the past is raises. In the 70s something like 30% of workers got automatic cost of living raises based on inflation. Other employers didn't do it automatically, but had to match to keep workers. Today, that's virtually non-existent. And you can't have sustained inflation without raises.

I hope I'm wrong though. 4% inflation would do wonders for our nation.

 

[Jeffreauxdawg]

Maybe. To me, the main thing different from the past is raises. In the 70s something like 30% of workers got automatic cost of living raises based on inflation. Other employers didn't do it automatically, but had to match to keep workers. Today, that's virtually non-existent. And you can't have sustained inflation without raises.

I hope I'm wrong though. 4% inflation would do wonders for our nation.

Inflation is okay if we call it inflation. Not if we lie and call it growth. Here's household income by year....

View attachment 16402
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[greenbean.sixpack]

They are mostly getting a **** ton more out of social security and medicare than they paid in and ran up a pretty good national debt that younger people are presumably going to bear the brunt of, so I think it' sgoing to take more than low interest rates for them to be able to claim wealth has been transferred from them.

My grandfather made a low income for 50 years, filed for social security and lived well into his 80s. My grandmother, who never paid SS taxes, drew off his record and lived to 96. There is no telling how much more they drew out than the taxes my grandfather and his employers paid in.

 

[BoomBoom.sixpack]

Inflation is okay if we call it inflation. Not if we lie and call it growth. Here's household income by year....

View attachment 16402
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For that you want historical real median household income. Looks like you are using mean, not median. Don't want Bezos' income throwing the numbers.

 

[Jeffreauxdawg]

For that you want historical real median household income. Looks like you are using mean, not median. Don't want Bezos' income throwing the numbers.

Good point. So all the money we printed has wound up with the top 3% who don't spend it. If we raise taxes and entitlements, does that mean we are going to take money out of Bezos and Buffet's accounts and stick it into society, thus increasing the money supply in use?

It's fascinating. Taxes and increasing interest rates are the MMT fans way to control inflation. Seems like one of their tools might make it worse. Thanks for the heads up. Trying to get my hands around the economic consequences of all this Fed action.

 

[BoomBoom.sixpack]

Good point. So all the money we printed has wound up with the top 3% who don't spend it. If we raise taxes and entitlements, does that mean we are going to take money out of Bezos and Buffet's accounts and stick it into society, thus increasing the money supply in use?

It's fascinating. Taxes and increasing interest rates are the MMT fans way to control inflation. Seems like one of their tools might make it worse. Thanks for the heads up. Trying to get my hands around the economic consequences of all this Fed action.

Has it? Half of it maybe.

Increasing the money supply does not lead directly to inflation. It does under certain conditions.

Here's a rather fascinating take on that debate, in hindsight:
https://www.huffpost.com/entry/paul...9lhzeU-bLjG2Ln-R4zO3pYQD8nb6wxsEhFk5vT3aazz5v

PK summed that up pretty well back then. Some of his old writings may offer some guidance.